http://www.edmontonjournal.com/business/Tighter+leasing+policies+good+dealers+customers/2701182/story.html
Tighter leasing policies good for dealers and customers
Residual values currently holding at reasonable levels
BY DAVE HALLIDAY, FREELANCEMARCH 19, 2010
Edmonton dealers say they are buying back whatever quality cars are available from customers whose lease terms are up.
Photograph by: Justin Sullivan, Getty Images, Freelance
The world of automotive leasing is dramatically different than it was a few short years ago.
Fewer cars and trucks are available to lease, payments are likely to be higher and residual values -- the amount the automaker decides the vehicle is worth at the end of the lease -- are lower. The days when leases represented 60 to 70 per cent of new vehicle sales are gone.
Bob Vilas, executive director of the Edmonton Motor Dealers' Association, said leasing has been substantially reduced. Manufacturers no longer offer "the large incentives they used to have" to encourage leasing.
"It's a much smaller part of the business than it used to be," he said.
However, many of the changes in leasing have been for the better -- for both dealers and consumers.
At one point, residual values were too high, meaning consumers and dealers were unlikely to buy the vehicles at the end of the lease. Instead, they would go to auction where the bidding would put a more realistic value on the units.
"The manufacturers ended up with large numbers of cars that they had to sell at auction," Vilas said.
Since many of those vehicles sold at less than the residual value set for them, some automakers endured a measure of financial pain. However, other manufacturers were more cautious in their approaches to leasing.
"Toyota never got in trouble on leasing," said Neal Gratton, president of Gateway Toyota. "For the most part, they build a business model that works for them."
Today, customers usually have equity in the vehicle that can be used toward purchasing the leased vehicle or toward leasing another. There can be tax advantages to leasing for some business customers.
If a customer passes on purchasing their car or truck, car dealers are often quick to buy, as the dealership knows the history of the vehicle.
"Most often the customer buys them," Gratton said.
Phil Bracegirdle, general manager of Pointe West Honda, said sometimes a customer will buy the vehicle, "transfer it to a family member, then lease another new vehicle."
Another possible ending to a lease term is when dealers send the car back to the manufacturer.
"Some we will send back," said Rick Brown, vice-president of Waterloo Ford Lincoln. "We keep as many as we possibly can."
The decision to send a vehicle back to the manufacturer, which will sell it at auction, can be based on factors such as condition or whether the dealership already has too many of that model in stock. Gratton said if it's not a good vehicle, his dealership doesn't keep it. When dealerships send vehicles back to the manufacturer, the automaker then offers the vehicles to other dealers in online sales. Generally, dealers would only buy cars or trucks located nearby, unless it's a special vehicle.
Honda, known for being cautious with its leases, was one of the manufacturers least affected by problems with leasing, and Bracegirdle predicts it'll be a good year for signing new leases.
"It's a way to have a vehicle you could not otherwise afford," he said.
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